Why Tilray Is Jumping Today

What happened

Shares of Tilray (NASDAQ: TLRY) were up 8% as of 11:30 a.m. EST Tuesday after rising as much as 13.4% earlier in the morning. The Canadian marijuana grower announced a global partnership with Novartis (NYSE: NVS) to develop and distribute medical marijuana products across the world.

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This wasn't Tilray's first deal with Novartis. In March 2018, the company announced a strategic alliance with Sandoz Canada, a subsidiary of Novartis, to become the exclusive partner for the drugmaker in marketing medical cannabis products in Canada.

So what

The latest agreement with Novartis is certainly great news for Tilray. Novartis has a major presence across the world. Teaming up with it should enable Tilray to compete more effectively in international markets including Australia, Germany, and the United Kingdom.

On the other hand, Tilray's Novartis deal isn't as significant for the company as the agreements between Constellation Brands and Canopy Growth or between Altria and Cronos Group. Both of those deals involved substantial investments by the companies outside of the cannabis industry -- $4 billion for Constellation and around $1.8 billion for Altria.

But Tilray's relationship with Novartis gives the company credibility as a major player in the global cannabis industry. That could help Tilray land on the short lists of beverage makers or other companies that are seeking partners to target the recreational marijuana market.

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Of course, Tilray CEO Brendan Kennedy has indicated in the past that the company prefers to go it alone in the recreational market. His tune would probably change, though, if the right partner (and the right amount of money) came along.

Now what

There's still a looming milestone for Tilray that should make investors wary. On Jan. 15, 2019, the company's initial-public-offering lockup period expires. Tilray insiders will then be able to unload some of their shares at a hefty profit. If that happens, it could create significant downward pressure on its share price.

Over the long run, however, its prospects appear to be good. Today's announcement of an expanded relationship with Novartis underscores the opportunities that Tilray has before it.

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